Growth stocks are doing most bullish thing they can

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

In terms of the major averages, the Naz has shown steady outperformance for nearly two months. This is a significant plus for any market cycle, as the index is a proxy for growth, technology, and small-capitalization shares, all generally considered to be more speculative.

At the same time, fundamentally sound growth shares continue to set up and break out of bases. This normally occurs for roughly three months or so subsequent to the outset of an intermediate-term advance.

During March, April and early May, this column was concerned that the growth sector had ceded leadership to value/cyclical issues, as is normally the case in a mature bull market. At the time, few growth titles stirred.

However, institutions, reflecting an increased level of comfort surrounding the then-nascent advance in the averages, began staking out positions in some of the liquid glamours. Come late May, a few liquid glamours such as Priceline Group PCLN, -2.30%
and Google GOOG, -1.72%
started to materially outperform.

While these names soon saw their rallies fizzle out, others quickly took their place. Along these lines, the importance of flexibility and an open-minded approach to new technical developments cannot be overestimated.

Among the names, Gilead Sciences GILD, -1.38%
is the largest-capitalization biotechnology concern. It is expected to grow earnings by 208% in 2014, followed by another 24% in 2015, per most Wall Street seers who keep tabs on the shares. The company's line of business is in the areas of viral, fungal, respiratory and cardiovascular diseases.

This is an 89th percentile stock when ranked according to relative price strength over the past year. Its industry group is in the 87th percentile. In the last two quarters, the number of mutual funds has grown from 2,495 to 2,563 to 2,694, respectively.

Technically, GILD appears poised to clear the top of its four-month base-with-handle pattern. As such, an aggressive speculator might consider using the base top of 84.88 (the Feb. 25 high) as an entrance pivot. As always, a junior position (half normal) is suggested initially. This can then be added on to in the event the stock proves itself. A standard stop of 6%-7% is considered reasonable as a means of protecting capital from any potential loss.

Page BreakIllumina ILMN, -1.52%
was discussed in the June 10 column ("This bears watching in the coming days/weeks for another entrance pivot, pullback or other attractive opportunity. Price may stall as it gets closer to its 183.30 high, which could lead to the next attractive pattern setup.").

To review, the company develops systems used in medical research. What makes it special from an investment standpoint is its combination of 20-plus-percent earnings growth per annum, its high earnings stability (annual standard deviation of 9% over the past few years), and its deep liquidity. This combination is quite attractive to large participants who follow a mandate to invest in growth-oriented shares.

Most analysts on the Street see earnings up 21% this year and 23% next. Revenue growth has been steady, at 23%, 25%, 25% and 27%, respectively, over the past four quarters. Technically, the stock Monday cleared the two-week handle of its four-month, cup-with-handle base. Volume was 27% above average.

An aggressive speculator could either enter here around Monday's closing price of 178.54 or wait for a formal breakout of the base top of 183.30 (the March 4 high).

Live Nation Entertainment LYV, -1.79%
was mentioned in the June 3 column ("A very aggressive speculator might use the handle high of 24.71 set May 27 as a potential entrance for a standard breakout.). The company operates venues that offer concerts and theatrical events. Most analysts look for an 81% growth rate in earnings for 2015.

Technically, price missed a breakout from its four-month, cup-with-handle base by two cents Monday. An aggressive speculator might consider an entrance upon a takeout of the 24.80 high of Feb. 25.

Growth issues continue to set up and break out of bases, most of four months' duration. This is the most bullish thing a market can do. While a 3%-5% reaction could always occur at any time, the aggressive speculator in growth titles continues to find opportunity in this market.

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position.

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